Types of Buyers

Types of B2B Customers

1. Commodity Buyers

Characteristics:
Commodity buyers focus solely on the price and view products as interchangeable commodities. They are likely to switch suppliers if they find a better deal elsewhere.
Business Strategy:
For suppliers in this market:
- Scale is crucial for success. Larger players dominate due to their ability to manage churn and attract new customers continuously.
- Value-added services or differentiators are not of interest to these buyers.
Challenges:
- Price wars dominate this segment, which can lead to diminished profitability.
- Smaller players struggle to compete unless they achieve significant scale.

2. Underperformers

Characteristics:
These customers operate in industries with high fixed costs (e.g., iron, steel, pharma). Suppliers often provide low prices or free services to win their business, hoping to raise prices later. However, this rarely materializes.
Business Strategy:
- Suppliers often pursue these customers as a strategy to enter the market or gain prestige through association.
- However, this strategy often leads to unsustainable margins over time.
Challenges:
- Price wars are ineffective and detrimental.
- The inability to raise prices later often results in losses.
Insights:
Suppliers must be cautious about engaging with underperformers unless they possess significant economies of scale or a clear path to profitability.

3. Partners

Characteristics:
Partners view suppliers as integral to their operations. They require turnkey, customized solutions and are willing to establish long-term commitments.
Business Strategy:
- Suppliers need to invest in bespoke solutions and adapt their business processes to meet the partner's needs.
- Relationships are strengthened over time, creating a mutually beneficial scenario.
Challenges:
- High upfront costs due to customization.
- Requires significant effort to build trust and prove value.
Advantages:
These partnerships foster strong dependencies, ensuring long-term sustainability and collaboration.

4. Most Valuable Customers

Characteristics:
These customers are as loyal as partners but are less expensive to serve. They invest in the supplier's capabilities to ensure mutual growth.
Business Strategy:
- Both supplier and customer collaborate closely, with the customer actively investing in the supplier's infrastructure.
- Efficiency in delivery and shared goals strengthen the relationship.
Advantages:
- Strong dependency and shared investments result in unparalleled loyalty and profitability.
- This is the ideal customer segment, but achieving this level requires significant effort and mutual trust.

Organizational Buying Process

Organizational buying refers to the structured decision-making process used by organizations to evaluate their needs, assess suppliers, and make purchases. Key aspects include:

Need Establishment: Identifying the product or service required.
Evaluation: Comparing options among various suppliers and brands.
Decision-Making: Choosing the supplier based on criteria such as cost, quality, and reliability.

Institutional Market

Overview

The institutional market includes entities such as schools, colleges, universities, hospitals, hostels, and jails. These institutions purchase finished products in bulk to provide services to their care recipients.

Characteristics

Budget Constraints: Typically operate within limited budgets.
Procurement Methodology: Use technical qualifications and prioritize the least cost (L1) model.
Low Customization: Prefer standardized, low-cost solutions over highly technical or customized products.

Business Implications

The market resembles the commodity or underperformer customer segment.
Suppliers with scale can benefit, but it is challenging for smaller players.